At the Heart of Texas: Cities’ Industry Clusters Drive Growth
This report uses industry cluster definitions developed by the StatsAmerica Innovation Project, funded by the U.S. Commerce Department’s Economic Development Administration and assembled by the Purdue Center for Regional Development and the Indiana Business Research Center. The original 17 clusters and six manufacturing subclusters provide a comprehensive view of the interconnected upstream and downstream industries.
While clusters based on this definition are defined by their North American Industrial Classification System identifier (or NAICS code), they do not necessarily correspond to a specific broad NAICS sector. Rather, the clusters are made up of interrelated subsectors or industries (from the three-digit level down to the six-digit level) that are part of different NAICS supersectors (two-digit level). In some instances, individual NAICS industries may be found in multiple clusters, and not all existing industries are included in a cluster.
The StatsAmerica analysis focuses only on “traded” clusters, or industries that are export oriented; thus, some large and important industries were omitted. We altered some of the cluster definitions to create a more complete view of the industry mix in Texas metro areas. We included the Retail, Construction and Utilities NAICS supersectors and added a Government sector that includes federal, state and local government workers. We took hospitals and health and personal care stores out of the Biomedical StatsAmerica cluster and created a separate Health cluster that includes personal care stores, hospitals and ambulatory health care services.
We combined the StatsAmerica Mining and Energy clusters, and aggregated all of the mining and support activities subsectors up to the three-digit level. We modified StatsAmerica’s Education and Knowledge Creation cluster to include only educational services. We also added food services back into Arts, Entertainment and Recreation (called Recreation and Food Services) by including all the Accommodation and Food Services supersector. Additionally, to look at the manufacturing sector in more detail, we broke up the Manufacturing grouping into its six subcluster components as defined by StatsAmerica.
For purposes of our cities analysis, we used Census Bureau definitions of metropolitan statistical areas (MSAs) for Austin, Houston, San Antonio, El Paso and McAllen. For Dallas and Fort Worth, we used the Census Bureau’s definitions of metropolitan divisions. For Midland–Odessa, we combined the two MSAs into one. (See A.3 for the list of counties included in each metro.)
We used data from the Quarterly Census of Employment and Wages, which contains employment, wage and firm information by industry down to the six-digit NAICS level. Data for each metro and for Texas overall were retrieved from the Texas Workforce Commission (TWC), while data for the U.S. came from the Bureau of Labor Statistics (BLS).
TWC and BLS data may be suppressed at some levels of detail when the number of firms does not reach a certain threshold and the confidentiality of individual firms may be at risk. Data from the TWC are suppressed to a lesser degree than those from the BLS. TWC data are only available quarterly, so annual employment data were calculated by taking the average of quarterly employment, and annual total wages were calculated by summing quarterly wages. Thus, some discrepancies may exist in the wage data because some industries may be unsuppressed in one quarter and suppressed in another, leaving annual wage data incomplete. Additionally, because of suppression issues, employment in some industries with fewer firms is potentially understated.
The detailed employment and wage data were aggregated into clusters based on the StatsAmerica cluster definitions, using NAICS codes to match the raw data with the cluster definitions. For each cluster, the component industry annual employment and wage data were summed, and excluded industries were subtracted. Average wage data for each cluster were calculated by taking total wages for the aggregated cluster and dividing by total employment in the cluster.
Location quotients (LQs) were calculated by taking cluster employment in each metro divided by total metro employment, over cluster employment in the U.S. divided by total U.S. employment. An LQ greater than 1, therefore, means that the cluster’s share of total employment in the metro is greater than its share of total U.S. employment, indicating that the cluster is more concentrated in the metro than in the U.S. overall.
Demographic data are from the Census Bureau’s American Community Survey. The most recent available data are from 2014; we compared those with data from the 2006 survey. In both years, only one-year estimates were used for analysis.
The Kauffman Startup Activity Index measures business creation in the 40 largest metropolitan areas in the U.S. The index is based on three indicators: the rate of new entrepreneurs starting businesses, the percentage of new entrepreneurs not unemployed before starting a business and the number of startup firms per 100,000 residents.
A.2. Changes to StatsAmerica Cluster Definitions
- Split Manufacturing grouping into individual subcluster components.
- Changed Education and Knowledge Creation to include just Educational Services (NAICS 61). Removed NAICS 51111 (Newspaper Publishers), NAICS 51112 (Periodical Publishers), NAICS 51113 (Book Publishers) and NAICS 516 (Internet Publishing and Broadcasting, which are already counted in Printing and Publishing). Moved NAICS 519 (Other Information Services) to Printing and Publishing cluster.
- Removed NAICS 51911 and NAICS 51919 from Printing and Publishing to avoid double counting.
- Combined the Mining and Energy clusters.
- Aggregated all subsectors in NAICS 212 and 213.
- Removed NAICS 621 and NAICS 446 from Biomedical cluster and created a Health sector that includes NAICS 621, NAICS 622 and NAICS 446, with no exclusions. NAICS 623 was not included.
- Added Retail (NAICS 44–45), Construction (NAICS 23) and Utilities supersectors (NAICS 22).
- Added a Government sector, which includes total federal, state and local government workers.
- Aggregated the individual NAICS subsectors 7211 and 7212 up to the NAICS 72 sector level in the Recreation cluster. All other industries in the original Stats America cluster Arts, Entertainment, Recreation and Visitor Industries were included as is.
A.3. Metropolitan Statistical Area (MSA) County Definitions
Austin–Round Rock MSA: Bastrop, Caldwell, Hays, Travis, Williamson
Dallas–Plano–Irving Metropolitan Division: Collin, Dallas, Denton, Ellis, Hunt, Kaufman, Rockwall
El Paso MSA: El Paso, Hudspeth
Fort Worth–Arlington Metropolitan Division: Hood, Johnson, Parker, Somervell, Tarrant, Wise
Houston–The Woodlands–Sugar Land MSA: Austin, Brazoria, Chambers, Fort Bend, Galveston, Harris, Liberty, Montgomery, Waller
McAllen–Edinburg–Mission MSA: Hidalgo
Midland–Odessa Combined Statistical Area: Ector, Martin, Midland
San Antonio–New Braunfels MSA: Atascosa, Bandera, Bexar, Comal, Guadalupe, Kendall, Medina, Wilson
A.4. Location Quotient and Average Wage Equations
- Cluster location quotient =
where ei = metro’s cluster employment, e = metro’s total employment, Ei = U.S. cluster employment and E = U.S. total employment.
- Cluster average wage =
where xi = total wages paid in each cluster and ei = employees in each cluster.
A.5. Additional Data
Detailed cluster location quotient, employment, wage and demographic data are available at www.dallasfed.org/research/heart.
- As used by Diane F. Primont and Bruce Domazlicky in "Industry Cluster Analysis for the Southeast Missouri Region," Center for Economic and Business Research, September 2008.
- Detailed cluster definitions can be found on the StatsAmerica website, www.statsamerica.org/innovation/about.html.
- See A.3 for the full list of metro areas and their definitions.
- See A.4 for the full equations.
- See Office of Management and Budget Bulletin 13-01, Feb. 28, 2013, www.whitehouse.gov/sites/default/files/omb/bulletins/2013/b-13-01.pdf.